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Repossession and the Democratization of Credit

Author

Listed:
  • Juliano J. Assunção
  • Efraim Benmelech
  • Fernando S. S. Silva

Abstract

We exploit a 2004 credit reform in Brazil that simplified the sale of repossessed cars used as collateral for auto loans. We show that the change has led to larger loans with lower spreads and longer maturities. The reform expanded credit to riskier, low-income borrowers for newer, more expensive cars. Although the credit reform improved riskier borrowers' access to credit, it also led to increased incidences of delinquency and default. Our results shed light on the consequences of a credit reform, highlighting the crucial role that collateral and repossession play in the liberalization and democratization of credit.

Suggested Citation

  • Juliano J. Assunção & Efraim Benmelech & Fernando S. S. Silva, 2012. "Repossession and the Democratization of Credit," NBER Working Papers 17858, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17858 Note: CF LE ME
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    1. repec:eee:jbfina:v:82:y:2017:i:c:p:165-179 is not listed on IDEAS
    2. Carrasco, Vinicius & Salgado, Pablo, 2014. "Coordinated strategic defaults and financial fragility in a costly state verification model," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 129-139.
    3. repec:eee:exehis:v:65:y:2017:i:c:p:68-93 is not listed on IDEAS
    4. Rima Turk, 2015. "Financial Decisions and Investment Outcomes in Developing Countries; The Role of Institutions," IMF Working Papers 15/38, International Monetary Fund.
    5. Beltratti, Andrea & Benetton, Matteo & Gavazza, Alessandro, 2017. "The role of prepayment penalties in mortgage loans," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 165-179.
    6. repec:eee:finsta:v:33:y:2017:i:c:p:1-22 is not listed on IDEAS
    7. Zegarra, Luis Felipe, 2017. "Usury laws and private credit in Lima, Peru. Evidence from notarized records," Explorations in Economic History, Elsevier, vol. 65(C), pages 68-93.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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